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Market 'shoes' to drop

03/04/2013 @ 12:33pm

It seems like the market is digesting a lot of information while waiting for the next 'shoe or shoes to drop'.

Currently, the market is trading large South American crop estimates, South American weather, increased U.S. soybean demand, improving U.S. wheat weather, and tight U.S. corn supplies. The first few items on the previous list are certainly bearish for prices, and the latter items bullish.

So, will the bulls or bears win this price 'tug-of-war'?

One could build an argument that if the bulls win the first battle, the bears could win the second. But, that leaves the same question of who wins the tug-of-war?

And how does a farmer build a risk management plan around the stand-off of what looks like a see-saw-like market?

For a long time, I've been told by market analysts that farmers should really prepare for a 'scenario-like' year. For instance, the corn and soybean balance sheets are tight and a drought could really skyrocket summer prices. However, friendly planting and growing seasons could send corn prices into the $4.00 per bushel range or lower.

So, while the futures market keeps trading in the $5.45 range (for Dec. corn) and the $12.50 range (for Nov. soybeans), the cash basis levels remain strong. And the farmer is stuck with believing the chatter that the fall prices could plummet with an average to above average crop year, or believing that demand will stay high assisting in better prices later.

To be sure, a few Iowa farmers say that a $5.00 corn market is cutting it close for break-even levels, this year, lending credence to selling early. For soybeans, those same farmers say that when the bean market trades with a 13 in front of it, their finger will be ready to pull the 'sell' trigger for new crop. 

It's interesting to note that many farmers in Agriculture.com's Marketing Talk discussion group are reporting high rates of inquiries from corn buyers in March. The heavy interest from end-users is coming in a lot earlier than normal, the farmers report.  

Because of the increased anxiety of see-sawing prices, some analysts are suggesting farmers manage risk with option contracts. Though more are choosing to consider options, farmers remain uncomfortable with that choice. 

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